Before knowing, how to start transacting in Stock market, we have to be aware of some basics. Have given some detail in the Part 1 and Part 2. Before going through part 3, have a look over those.
How to start transacting in Stock market?
Before starting transaction you need to select a broker of your choice. Where, the broker must be registered with SEBI .As earlier given some of the brokerages such as HDFC Securities, ICICI Direct, Axis Direct, and Zerodha, Angel Broking and Upstox etc.
Then Enter into the broker-client agreement and fill the client registration form, fulfilling all KYC norms. Presently, almost all brokers are offering online opening facility for Demat and Trading account.
On submission of your form, you will get a unique client code. All your transactions made under this code are mentioned in all your correspondence and contract notes.
Beside trading account, you have to open a DEMAT account with your broker. Once your account is active you can add money to your account through the available options UPI or Net banking and then you can start transactions.
If any complaints you can raise ticket with the given client id and you can query the support.
Contract note is the legal record of any transaction carried out on a stock exchange through a stockbroker. It serves as the confirmation of trade done on a particular day on behalf of a client on a stock exchange.
A client should receive the contact note within 24hrs of the executed trade. Contract note describes key details of a particular transaction together with the date, time, price, quantity traded etc.
The Net amount receivable/ payable by you for your trades for the day will be indicated at the bottom of the contract note, and this is the amount that will be charged to you & posted in the ledger.
Note: 1.If the net amount is inside brackets it means that amount will be deducted from your trading account for purchases made or losses incurred.
2: Contract notes sent to clients over email needs to be password protected as required by the exchange regulations. The password for your contract note will be your PAN number (In Capital letters)
What is rolling settlement?
On 14th may 2001, the SEBI board decide to introduce rolling settlement. It was 1st introduced on 2nd july 2001 in 200 stocks .
In a Rolling Settlement, trades executed during the day are settled based on the net obligations for the day.
Presently the trades pertaining to the rolling settlement are settled on a T+2 day basis where T stands for the trade day. Hence, trades executed on a Monday are typically settled on the following Wednesday (considering 2 working days from the trade day).
The funds and securities pay-in and pay-out are carried out on T+2 day.
For arriving the settlement day all intervening holidays, which include bank holidays, NSE holidays, Saturdays and Sundays are excluded.
- Investment(Delivery Based Trade)
- Speculation(Intraday And Derivatives Positions)
- Hedging And Arbitrage
- Margin funding
- Dividend income
Investment(Delivery Based Trade)
Delivery based trading means buying shares and holding them for certain period of time is called delivery based trading. The shares you bought will be in your Demat account. Once you take delivery of shares you can hold them as long as you want. Such stocks are bought through your stock broker, which is then transferred to your Demat account, where it stays in the electronic form, and you get a statement of it on monthly or quarterly basis, as opted by you, which shows the balance of stocks you hold in Demat account. You don't get any margin to buy shares in delivery.
If proper monitoring and care is taken, stocks can give phenomenal returns in the long term.
You should do your research and then go for different companies from a variety of sectors. Investing in different companies will benefit you because if any of those sectors have positive news, it will ensure profits for you.
Be Patient-The share market is an extremely volatile one, so, it will test your patience regularly. There is always a possibility that the shares you buy go down. The prices of all shares go up and down periodically. If you see the prices dipping downwards, do not fear the worst and sell your shares off.
Speculation(Intraday And Derivatives Positions)
Speculation is nothing but investment in stocks in the hope of gain but with the risk of loss.
Intraday speculation:
In intraday trading, a stock is bought and sold on the same day, with the profit or a loss. If trading done with proper monitoring results into positive cash flows. If not with proper study it becomes gambling. At the end of the day position is to be compulsorily squared off, whether it is profit or loss.
Derivative Speculation:
A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset.
Speculators look to buy an asset in the future at a low price according to a derivative contract when the future market price is high, or to sell an asset in the future at a high price according to a derivative contract when the future market price is less.
There are two primary forms of derivatives:
- Futures
- Options
A futures contract is a standardized agreement between two parties to buy or sell the underlying commodity or asset at a specific price at a future date.
Every future contract has got a specific lot size.
At a given time, there are three months contracts open to trade. For Example, if current month is Jan then futures for Feb, March and April month are available to trade.
Every future contract has an expiry. So those who don’t sell their future before expiry then their lot gets squared off at the closing price on the expiry day.
Margins:
Initial Margin: Before a futures position can be opened, there must be enough available balance in the futures trader's margin account to meet the initial margin requirement. Upon opening the futures position, an amount equal to the initial margin requirement will be deducted from the trader's margin account and transferred to the exchange's clearing firm. This money is held by the exchange clearing house as long as the futures position remains open.
One has to pay initial margins to buy a future, It could be anywhere from 10% to 25% in a normal market conditions, and the margins could rise in volatile markets.
After you buy a future, mark to market is calculate daily based on the difference of closing price from your buy price.
After the position is squared off, if it is in the positive, one gets the profit and margins back. If it is negative one has to paid mark to market loses at regular interval then one gets the margin back.
If the balance in the futures trader's margin account falls below the maintenance margin level, he or she will receive a margin call to top up his margin account so as to meet the initial margin requirement.
Currently futures of many stocks, index and commodities are available to trade.
Note: Those who do not have adequate margin at hand must never enter futures market.
‘’ Warren Buffet has rightfully said, that derivatives instruments are financial weapons of mass destruction”.
Its true because most of the people are unskilled to trade such complex instruments. Without any proper adequate knowledge always ended with huge losses. So after having this basic knowledge it is best to start transacting in stock market.
Hello, welcome to my blog, Smart Investor. I'm Satyanarayana, a banker & blogger, Investor from Visakha -patnam, India. You can read more about SML here.
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